More than two years after A&B Check Cashing collapsed amid allegations of fraud, it has reached a proposed settlement with one of the banks where A&B deposited checks.

Carrollton Bank had filed documents in A&B's bankruptcy case claiming it lost $5 million from alleged check kiting. But Carrollton has agreed to reduce its claim to $1.8 million and pay up to $75,000 to the bankruptcy trustee to cover the cost of investigating claims, according to a settlement agreement filed in U.S. Bankruptcy Court on July 22. Carrollton and A&B agreed to release each other from future legal claims.

"We're very happy with the settlement we were able to reach with the trustee," said Robert Parsons II, a lawyer representing Carrollton, which denied any liability in the case. "It reduces Carrollton's liability exposure in the case considerably and still provides benefits to the bankruptcy estate."

A&B filed Chapter 11 bankruptcy and co-owner Alec Satisky committed suicide in June 2006 as the company faced claims of check-kiting by local banks. Kiting schemes involve drawing out money from a bank account that does not have enough funds to cover the check.

Zvi Guttman, a court-appointed trustee overseeing the liquidation of A&B, had opposed Carrollton's $5 million claim. Guttman said in court documents that just before Baltimore-based A&B shut down, Carrollton stopped honoring checks written on A&B's main account at the bank.

But as deposits came into that account, Carrollton allegedly used $600,000 of them to reduce the amount A&B owed to the bank. That move unfairly benefited Carrollton, because the deposits should have been available to all A&B's creditors in the bankruptcy case, Guttman has said.

But in some similar cases, judges have not required banks to turn over deposits to creditors, Guttman said -- making it doubtful whether he could prevail in court. "We felt that defense was something the court might have accepted, so we made the best out of what we had," he said.

In February, Baltimore County Savings Bank and Farmers & Merchants Bank agreed to pay $250,000 to settle claims by Guttman.

About $1.6 million has been recovered for creditors in the A&B bankruptcy, but most of that already has been paid to creditors or used to cover administrative expenses, Guttman said. What happened at A&B remains a mystery, he said.

But in recent weeks, Guttman has filed about 10 lawsuits against parties that received payments from A&B in the period before it filed bankruptcy, hoping to recover more money for creditors. Through that process, Guttman said he hopes to learn more about how the company unraveled.